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Errors and Omissions ( E&O ) Insurance

Errors & Omissions Insurance protects owners of IT businesses, freelancers, and independent contractors in tech fields from the potentially massive costs of lawsuits claiming that their work caused financial losses for a client.

As an IT professional, you're among the people who are most vulnerable to E&O lawsuits for two reasons:

  1. Many of your clients don't fully understand what you do. Because of this, your expectations for a project and theirs may not line up. When you deliver work that you think is perfect, they might be disappointed – and decide to sue. If and when such a lawsuit arises, your Errors and Omissions coverage takes effect.
  2. The laws haven't caught up with your work. It's no secret that technology evolves faster than the courts can keep up. And that means that, if you're challenged on your work, there might be no precedent for how the courts should rule. In such a situation, your E&O policy would cover the cost of legal representation so you could defend yourself in court.

What Exactly is E&O Insurance?

Errors and Omissions Insurance (also called Professional Liability Insurance) is a type of coverage that lets you operate your business without worrying that an unexpected lawsuit will force you to drain your business or personal assets. E & O coverage kicks in when a client claims that work you're responsible for (such as programming, software installation, networking, etc.) includes mistakes or oversights that caused them a direct financial loss.

Your E&O policy will offer payment to cover certain specific expenses associated with defending yourself against a lawsuit, including:

  • Lawyers' fees. Even if an Errors and Omissions claim against you is without merit, the existence of the claim means you'll have to present a legal defense for yourself. To do that, you'll want to have a lawyer on your side, particularly if your case involves uncharted legal ground. E&O Insurance covers the cost of lawyers' fees up to the limits of your policy, so that you can focus on serving your clients rather than scraping up enough money to pay your legal bills.
  • Other court costs. In addition to paying your lawyer, defending yourself might involve paying docket fees, expert witness fees, transcript fees, and more. Luckily, these are all covered by insurance.
  • Settlements or judgments. If you agree to settle with your client or go to court and are found liable for wrongdoing, your E and O coverage will pay for this, too, up to the limits of your policy.

The kind of work you do and the type of clients you serve are two major factors that affect how high your Errors and Omissions policy limit should be. If you work with larger companies, it's usually a good idea to have a higher E&O limit. Why? Because a single mistake that prevents a large company from operating (even for a day) could cause a much greater financial loss than one that prevents a sole proprietor from operating.

Why Do I Need Errors and Omissions Insurance?

Even if you're careful in all your work, you have great relationships with all your clients, and you've never been sued in the past, it's still a wise idea to invest in an E and O policy to protect your IT company.

Why? Imagine this scenario: you're an independent contractor and you're working on a project for a larger IT company. One of this company's clients is a multi-billion-dollar retailer. The project you're helping with involves updating the company's email system – pretty straightforward stuff. You do your work, the project ends, and everything's good.

But three months later, the company's email is invaded by a virus that compromises almost all the customer data the company holds. The company looks terrible and shoulders massive liability – and it's looking for someone to blame. Its team of corporate lawyers decides the best strategy is to sue everyone who was involved in any capacity with the email update – including you.

Even though you likely had nothing to do with the virus (and in fact, it was probably the fault of a poorly trained employee of the mega-corporation), you're now on the hook for presenting a legal defense for yourself. If you don't have an Errors & Omissions policy in place, the cash for lawyers' bills will have to come out of your pocket. Read more about the 6 Myths about Errors and Omissions Insurance.

Should Every IT Firm Have Errors & Omissions Insurance?

The short answer is yes. E&O is a must for every IT professional. Errors and Omission Insurance is typically bundled along with General Liability Insurance.

Your industry is growing rapidly, and typically evolves faster than legislation and regulation can keep up. This means that an Errors and Omissions case against your IT firm could involve uncharted legal territory, making a defense lawyer an absolute necessity if and when you face E and O charges.

In truth, there are many reasons every IT specialist and tech company should purchase this type of insurance. Here are some of the most important:

  • It serves as personal protection. Even as a careful independent contractor, you could be named in an E&O suit brought by a large corporate client related to a project you did minimal work on (as in the example above). Even if your involvement in the project was small, the cost of your legal defense could be enormous.
  • It helps win new clients. E and O is not only used to protect your business against client claims; in fact, it can also help you land more clients. Carrying a robust Errors & Omissions policy demonstrates to clients that you have the resources necessary to serve it no matter what happens.
  • Mistakes happen. Many IT experts think that they will not make a mistake, probably because they have been in the business for numerous years without a single unhappy client. But the time will come that a person or group produces imperfect results. Before this happens, it is essential that the company has the resources necessary to protect itself.

Errors & Omissions Insurance Quirks: Claims-Made Coverage

One important aspect of Errors and Omissions Insurance (also known as Professional Indemnity Insurance) that all IT professionals should know about: this type of coverage works on a “claims-made” basis. This means that, in order to receive benefits from your insurance policy, it has to be active both when you file a claim and when the incident related to the claim occurred.

In other words, if you start and stop E & O coverage with your individual contracts, you likely won't have coverage when you need it most.

Where Can I Find E&O for Less?

As an IT Professional, you could easily spend days hunting down less-expensive Errors & Omissions Insurance policies online. And it is important to compare the costs of several policies before making a decision. (You can do this by requesting multiple E&O quotes from an insurance agent and comparing their benefits and costs before buying.)

But remember: while it may be tempting to choose the policy that offers E and O for less money each month, be sure to prioritize coverage over price. Saving money on your E&O policy doesn't make sense if it means you'll have to pay out of pocket in the event of an E and O claim against your business.

Get Errors & Omissions Costs and Quotes

Ready to find an Errors and Omissions Insurance policy suited to the needs of your firm? Contact a TechInsurance agent or fill out our simple online application, and we'll send multiple policy quotes to your email inbox. Find out more about the cost of errors and omissions insurance.

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